EDITORIAL - No more dithering on FATCA
As is too often the case, by the time the Jamaican authorities attempt to close the proverbial gate, the horse may have already bolted.
Or, more to the point, our financial institutions could be in trouble with the United States (US), facing penalties of up to 30 per cent of their gross income from transactions in America.
Alternatively, should they comply with America's directives, Jamaican banks, brokerage houses, insurance firms and pension fund managers, and others, could face legal challenges from their customers.
There are implications, too, for Jamaica's wish to establish itself as an international financial services centre.
The basis of this potential conundrum is FATCA, or the Foreign Account Tax Compliance Act, passed by the US Congress in 2010 and coming into force in the current US tax season. Few will quarrel with America's intent - ensuring that its citizens abroad pay their fair share of taxes.
So, US citizens and green card holders who live overseas are obliged to report to the Internal Revenue Service (IRS) assets of US$200,000 held in foreign financial institutions (FFIs) up to last December, or more than US$300,000 for any time during 2011. For married couples filing joint returns, the thresholds are US$400,000 and US$600,000.
The problem arises over the extraterritorial application of the law and the burden that Americans are placing on FFIs.
A Jamaican bank, for instance, is expected to enter an agreement with the IRS to file reports on its US expatriate customers, green card holders, and other specified persons with accounts that reach the FATCA thresholds. Failing to comply with the regulations is where the penalties come in.
The bottom line is that banks and other financial institutions will be expected to know their customers and to share such information beyond what is currently required by Jamaican law and regulations.
Fright and flight
A number of issues clearly arise from this. Among these is the potential for the breach of the specific and implied pact of confidentiality between Jamaican financial institutions and their customers. In this regard, there is a legitimate fear of a flight of some customers from formal financial institutions to unregulated entities and the cash economy.
There is, too, the cost of compliance, such as for new and/or additional software and staff to capture the data required by the Americans, for which all banks' customers are likely to be asked to pay.
Perhaps they have, but there is little evidence that either Jamaica or the Caribbean Community (CARICOM) has, separately or jointly, robustly engaged the Americans on this matter, seeking what is best for their institutions. A regional effort through, say, the CARICOM Committee of Central Bank Governors, would seem to make sense. Not only are most of the CARICOM states likely to share the same concerns, but insulation is in numbers.
In any event, Jamaica cannot afford to dither.
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